aurora presentation renewables 2.0: the subsidy-free ... · keynote speakers of our 2018 forum...

Aurora presentation

Speaker:

Mateusz Wronski

Renewables 2.0: The subsidy-free revolution

Agenda

1. Revolution

2. Impact

3. Challenge

Octopus Investments64MW 173MW

Last 12 months have seen landmark developments in subsidy-free renewables across Europe, with first projects emerging in GB

Source: Aurora Energy Research

Offshore wind auctionsVattenfall700MW

Markbygden650MW

Offshore wind auctionsOrsted & EnBW1380 MW

Renewables auctions3000 MW

April 2017 March 2018

Hive Energy46MW

Anesco10MW

Total/Reactive Technologies310MW

Whirlwind Power10MW

Hive Energy350 MW

Capacity delivered

RES140MW

-512

-2,386

356

NPV, 2018 entry

Revenue increase

25

Cost decrease

1,850

NPV, 2010 entry

Costs,2010 entry

2,742

Revenues, 2010 entry

78%

Present value of revenues and costs, 2010-2018£/kW

CostsRevenues NPV

Example: solar PV in GB Dramatic cost improvements have brought renewables to the cusp of viability without government support


• Global learning curve

• Economies of scale

• Understan-ding of risks

• LT PPAs

• Debt financing

• Gas + CO2

cost rise

• Higher LF

• Cannibalisa-tion

Present value of revenues and costs, 2018-2025£/kW


7

-512

NPV 2018

Cost decrease

344

35

Revenue increase

140

Cost of capital (13%=>8%)

NPV, 2025

NPVDe-risking CostsRevenues

Example: solar PV in GB Further cost declines, rising prices and lower cost of capital will see unsubsidised solar break even in GB in early 2020s

Key drivers:

2035203020252020 2040

Both solar PV and onshore wind will become investible in GB without subsidy by mid-2020s


235

+9.3%

Total revenue stacking in 2035

Additional revenue streams2

6

16

2

Revenue stacking wholesale revenues

211

Reduction to access other markets

4

Wholesale-only revenues in 2035

215

Ancillary services TotalWholesale marketCapacity marketBalancing Mechanism

Revenues of an offshore wind farm in 2035 for revenue-stacking model, GB£ per kW, 2016 real

Revenue stacking can provide material upside and bring forward subsidy-free deployment, but policy change is necessary


70104

2

40

97

11 12

2020

31

26 3

166

37%

2030

2722

13

2025

Additional renewables capacity since 2017,GW

Total capex spending on renewables since 2017£bn 2016, cumulative

73 9931

56

155

36%

Subsidised

Subsidy-free

20302025

9421

2020

354

Subsidised renewablesSubsidy-free solarSubsidy-free onshoreSubsidy-free offshore

Across North-West Europe, above 60 GW – over a third of all renewables investment - can be deployed subsidy-free by 2030


Agenda

1. Revolution

2. Impact

3. Challenge

1

4

7

12

22-21

Aurora subsidy-free RES

Aurora no subsidy-free RES

BEIS 2017 projection (gas)

Current pipeline of projects

DECC 2012 projection

Subsidy-free RES nearly eliminate the need for new baseload gas assets –a dramatic shift to very recent expectations


GB new-build CCGT, 2017-2030GW

9

15

21

3

2030

24

2025

161

2020

90

GB flexible capacity,GW


No subsidy-free RESAdditional deployment from subsidy-free RES

Unsurprisingly, flexible back-up assets stand to gain

11.7 12.511.0

6.4 5.3 7.9

Base

Peaking

Battery

Cheaper solarMore expensive wind

Cheaper windMore expensive solar

GB peaking and battery capacity in 2030,GW


Type of RES is critical for flexible capacity: solar favours batteries, while wind pairs better with peakers

100

20

2018 2020

120

40

140

02030

160

20262022 2028

80

2024

60

-20

GB system carbon intensity,gCO2e/kWh

Subsidy-free RES No subsidy-free RES

CCC’s recommended 2030 target

Subsidy-free RES would make meeting ambitious carbon targets significantly easier


Agenda

1. Revolution

2. Impact

3. Challenge

250

2010 2015

150

400

2020

350

300

2035

200

2005

50

0

450

2030

100

20402025

Onshore wind capture priceClean gas price Baseload electricity price

The merchant nature of investment means exposure to increasingly complex drivers of capture prices


GB priceIndex, 2001=100

Historical data

Realistic “Worst Case”

“Traditional” merchant

Cannibalisation

System composition

Understanding relationships between these risks allows to establish a robust “Worst Case” scenario for debt financing

-16

-6

-6

-10

-12

Impact on GB onshore wind capture price 2030, GBP/MWh

Low fuel and carbon prices

High RES build-out

DescriptionRisk category

High nuclear

Low flexibility (low EVs, dumb EV charging, low I/C, high battery CAPEX)

Base: £46/MWh

Combination accounting for feedback loops


Policy is vital – market access and subsidy-free CfDs could bring forward first deployment by up to a decade

20402030 203520252020

First deployment of subsidy-free offshore wind under alternative policy scenarios

Current policies

Full access to Capacity, Balancing and Ancillary Markets (‘revenue-stacking’)

Zero-subsidy CfD and ‘revenue stacking’


4

Key take-aways

1Subsidy-free renewables are quickly becoming investible, creating a 60bn GBP investment opportunity in North-West Europe alone

2The additional renewable capacity deployed without subsidies displaces baseload thermal generation and boosts opportunities for flexible assets

3Investment in unsubisidised RES requires understanding increasigly complex merchant risks; establishing a credible „Worst Case” is vital in risk management

Long-term policy clarity, ensuring level playing field across all markets, and subsidy-free CfDs, could be policy game changers for subsidy-free deployment

Aurora’s GB Renewables Service

▪ Forecasts of wholesale prices and capture prices until 2040, and other revenue streams: embedded benefits, ROCs, balancing mechanism, and ancillary services revenues accessible by renewables

▪ Regional capture prices and embedded benefits, ready to use in asset valuations and for financing cases

▪ All forecasts under High and Low (“break-even”) scenarios, including lower bound income forecasts for financing cases

▪ Impact of P10/P90 weather years on prices and revenues, reflecting negative correlation between load factors and capture prices

▪ Expected volumes and prices for future CfD rounds

▪ Forecasts of imbalance costs and subsidy cut-offs

▪ Market updates, policy review and outlook plus projection of technology cost and performance

▪ Investment case analysis for different subsidy-free business models for offshore wind, onshore wind and solar, including pairing with batteries and revenue stacking

GB Renewables Market Forecast, published twice a year1

Intelligence to build a successful renewables business, based on bankable price forecasts

Strategic insight reports4▪ Regular in-depth analysis offering unrivalled insight on critical topics for the GB renewables

industry – prepared in connection with the Group Meetings

▪ Planned topics to be covered:

– How low can capture prices go? Understanding merchant risks in subsidy-free world

– Additional revenue stream from participation in balancing mechanism and ancillary services markets

– Co-location business models for wind and solar with battery storage

▪ At least two reports are published per annum

Group Meeting participation5▪ Our subscribers participate in our regular Group Meetings to discuss highly relevant topics to the

industry, and network with other industry participants

▪ In collaboration with our subscribers, we select the topics, prepare in-depth analysis, present our views and implications, and invite participants to challenge them

▪ Future meetings are planned on (indicative):

– Design of Equivalent Firm Capacity (EFC) auctions and prospects for additional revenues for renewables

– De-risking strategies for merchant price risk and the development of a corporate and utility PPA market

▪ Participants will include leading offshore wind, onshore wind and solar developers, renewables-focussed investment funds, financiers, grid operators as well as government

▪ At least two meetings are held each year in London

Analytics and data platform EOS6

▪ Access to detailed historical and real-time GB wind farm and other market data

▪ Data includes output, load factors and capture prices on all large wind farms and other large power stations, power price and commodity price data

▪ Data can be viewed, charted and downloaded

Bilateral meetings & analyst support7

▪ Bilateral workshops with senior members and subject experts of Aurora’ team to discuss Aurora’s analyses and views on the market

▪ Short-notice support by our analysts on questions arising from our research

Granular forecast data in Excel, published twice a year2▪ Full forecast dataset in Excel until 2040 including:

– Wholesale price forecast, capture prices by technology and region

– ROC and CfD prices, capacity market, balancing market, ancillary services prices

– All under various scenarios including lower bound case

– All relevant cost projections: CAPEX, OPEX, imbalance prices & subsidy cut-offs

– Detailed investment case data for various subsidy-free business models

Giving you everything you need to build your own investment case

Monthly market summaries3▪ Monthly summaries on key performance parameters of the GB market to put market results into

perspective, to assist management in staying on top of developments

– GB Wind Performance Summary: monthly snapshot of financial and operating performance for individual wind farms

– GB Power System Performance Summary: key operating characteristics for the GB power system like demand, fuel mix and capacity margin

Invitation to Aurora’s annual Spring Forum8

▪ In our by invitation-only annual Spring Forum in Oxford industry leaders discuss the challenges of the energy industry of tomorrow

▪ Keynote speakers of our 2018 Forum included Claire Perry (Minister for Energy, BEIS), Magnus Hall (CEO, Vattenfall) and Alastair Phillips-Davies (CEO, SSE)

For more information and pricing, contact Sebastian Just, Head of CommercialAurora Energy Research

[email protected] +44 (0)7827 810 656 2-3 Cambridge Terrace, Oxford OX1 1TP

aurora presentation renewables 2.0: the subsidy-free ... · keynote speakers of our 2018 forum...

Documents